A Credit Union’s Guide to Dominating Retail Finance

Credit Unions can, and should, be the dominant retail financial services provider in every market in the US.

Yes, we can dominate!

All credit unions above 250m in assets, and most above 100m in assets can double their size every 5 to 6 years. This is not an exaggeration or headline-grabbing statement from a consulting firm. It’s absolutely within reach of every credit union with a community or multi-SEG charter.

I know because Bethpage FCU, where I had the opportunity to lead an extraordinary team, doubled its size every 5 years over a 15-year period in one of the most competitive banking markets in the US: Long Island, NY.

A well-documented and proven strategic planning process can move your credit union to over 13% annual growth and top 20% peer performance. The strategy is complex and one size does not fit all, but with the right discipline, every credit union willing to transform can create incredible results for their members.

Many factors lead me to this conclusion.

First, every credit union, by definition, has a better member value proposition (MVP) than its for-profit competitors. The MVP, created via our governance model of cooperative ownership, provides the unique opportunity to beat the competition on both price and service. An incredible one-two punch that any for-profit firm would die for.

Credit unions have a material cost advantage of not paying income tax and no requirement to provide non-member stockholder returns. The lower costs, if managed, provides the basis for the better MVPs of price and service. There are clear challenges to performing in this manner; trade-offs have to be made and expenses managed.

First Key Concept – Strategy is about what you choose not to do in order to excel at what you must do. Credit unions can win a dominant market share with the right strategy, by executing on both cooperative values and business disciplines.

In the final analysis, who wouldn’t do business with an organization providing the best price and service in a commoditized market? We can make that happen!

Second, almost all credit unions are overcapitalized for the risk on their balance sheet (see Callahan’s recent data on record income). There are a number of reasons for this which I’ll detail in later blogs, but for today’s analysis, it’s sufficient to conclude that even in slow income years credit unions still have the ability to promote growth and brand by lowering their capital percentages.

Second Key Concept – Running the credit union like a retail banking business is essential to execution and performance, including investing capital when the time is right.

The brand position and awareness of credit unions has never been higher thanks to our friends at Navy FCU and our multi-billion-dollar brethren who are building strong local, regional and national brands that are highlighting credit unions and our pricing and service value. I travel throughout the US and where ever I go, I see more local (non-TV) credit union advertising than bank advertising. We are in a new era. By the way, hats off to CUNA for moving forward on a national brand.

Third Key Concept – Market awareness and differentiation creates growth opportunities.

The macro factors of the economy: full employment, high consumer demand for loans (both autos and homes), continued low-interest rates, and maybe most important of all a leveling of the playing field with banks vis-à-vis digital and data technology solutions, have created a perfect world of growth. This is also fodder for another blog.

Fourth Key Concept – Always drive aggressively at opportunities by understanding your market and knowing that technology is leveling the playing field in ways never seen before.

So, why haven’t credit unions grown past our small 7% market share? Arguably, because credit union leadership anchors their institutions in a slow-growth mindset created from a lack of financial and strategic motivation, such as share price or similar incentive for performance.

To reverse this slow-growth mindset, credit unions must create a strategic “center of gravity” which focuses credit unions in the same way stock valuation focuses our for-profit competitors on growth and change. Options exist, but each credit union needs to think through an articulated strategic goal which clarifies every decision and causes the culture to learn and change at a rate the company wants to grow.

Credit unions also have a governance structure that shuns risk and thus the rewards of growth. Boards and senior management are acting logically. It’s in their best self-interest to act conservatively because they don’t share in growth’s dividends (stock price valuation). In other words, there are few, if any, rewards for those in decision-making roles to push for maximum growth or financial performance. Rather, they are biased towards avoiding risk and growth. The regulators, board members, trade associations and credit union teams support this paradigm of slow growth. For example, how many times have we heard the ridiculous statement that growth for growth’s sake is bad or risky? Growth for growth’s sake is the definition of capitalism, change, learning, innovation, member service, and performance. Breaking out of this strategic quagmire is difficult and requires a defined, agreed upon aggressive strategy.

Unfortunately, these anti-growth factors often outweigh all potential strategic performance options at most credit unions.

BIG Consulting would argue that not growing to a full market awareness and service poses an even greater strategic risk and undermines member value, but few in our industry accept this premise.

We can, and must, break out of this lower-growth mindset for the good of our current members, our credit union industry, and consumers throughout the US.

If anyone is interested in moving to the top 20% in performance, we have a plan. It isn’t easy, but we guarantee it will be successful.